HHS proposes AV calculator for qualified health plans

The Department of Health and Human Services (HHS) has issued a bulletin to provide information and solicit comments on the regulatory approach that it plans to propose to define actuarial value (AV) for qualified health plans (QHPs) and other non-grandfathered coverage in the individual and small group markets under section 1302(d)(2) of the Patient Protection and Affordable Care Act (ACA). AV is a measure of the percentage of expected health care costs a health plan will cover. AV is calculated based on the cost-sharing provisions for a set of benefits.

The bulletin addresses the:

• calculation of actuarial value,
• operational method for AV calculation using standard data,
• de minimis variation standards, and
• treatment of health savings accounts (HSA) and health reimbursement arrangements (HRA) in calculating AV.

Levels of coverage. The bulletin explains that the ACA requires issuers offering non-grandfathered health plans inside and outside of the Affordable Insurance Exchange (Exchange) in the individual and small group markets to assure that any offered plan meet distinct levels of coverage specified in ACA Sec. 1302, called “metal tiers”— bronze, silver, gold, or platinum. Under the statute, each metal tier corresponds to an AV, calculated based on cost-sharing features. The expression of AV as a metal tier will allow consumers to easily compare plans based on cost-sharing features, according to the bulletin.

ACA Sec. 1302(d)(2) directs the HHS Secretary to issue regulations on the calculation of AV and its application to the metal tiers. Pursuant to ACA Sec. 1302(d)(1):

• a bronze plan is required to have an AV of 60 percent;
• a silver plan, 70 percent;
• a gold plan, 80 percent; and
• a platinum plan, 90 percent.

ACA Sec. 1302(d)(2) also provides that a plan’s AV must be based on the provision of the EHB to a standard population without regard to the actual population to which a plan provides benefits. The law does not specify the definition of a standard population or a methodology for calculating a standard population.

Calculation of actuarial value. The bulletin indicates that HHS intends to propose using a standard data set for AV calculations for QHPs and non-grandfathered health plans in the individual and small group markets, for which HHS would develop a national standard population. To promote state flexibility and account for variation in prices, utilization, and benefits across states, HHS intends to propose an option that would permit states to develop state standard populations based on state claims data.

Operational method for AV calculation using standard data. HHS intends to develop a publicly available AV calculator that plans would use to determine AV. The calculator would be developed using a set of claims data weighted to reflect the expected standard population in the individual and small group markets for the year of enrollment. Plans would input information on cost-sharing parameters.

According to the bulletin, both the logic and the tables of aggregated data used to develop the calculator would be made public to maximize transparency. The calculator method ensures a consistent set of assumptions and methods in AV calculation, maximizing comparability for consumers since plans with the same cost-sharing design would have the same AV.

De minimis variation standards. HHS also intends to propose a de minimis variation of +/− 2 percentage points in AV (e.g., a silver plan could have a value from 68 percent to 72 percent) so issuers have the flexibility to set cost-sharing rates that are simple and competitive while ensuring consumers can compare plans of similar generosity.

Treatment of HSAs and HRAs in calculating actuarial value. The bulletin also notes that HHS intends to propose that, for purposes of calculating the AV of an employer health benefit plan, the annual employer contribution to the employee’s HSA associated with a qualifying HDHP and the amount made available for the first time in a given year under an HRA that is linked to an employer health benefit plan shall be considered part of the benefit design of the health plan.

In calculating the AV of the combined HDHP and HSA or combined employer health benefit plan and HRA, the calculation would assume that the employer contribution to the HSA or HRA is used by the employee to pay for cost-sharing. Accordingly, these amounts would be credited to the numerator of the AV calculation. The bulletin explains that this means the AV calculator would include any current year HSA contributions and amounts first made available under an HRA as an input into the calculator that can be used to determine the AV of an employer health benefit plan.

The bulletin notes that the method used to evaluate the HSA or HRA impact on health plan AV has no bearing on the opportunity of employers to offer HSAs or HRAs, or the tax treatment of HSA contributions or amounts made available under an HRA.